Food prices set to soar as crunch hits farmers

South Africans must brace for more food price increases as thousands of farmers face a major credit crunch due to soaring electricity costs.

The latest figures show that additional costs, such as fuel, feedstock and veterinary services, are adding to the agriculture debt squeeze which has already reduced the number of diary farmers to 2670 from 30000 in the 1980s, the Milk Producers Organisation said earlier this week.

Proposed electricity price increases would be a major setback for maize and wheat farmers, reveals a report released recently by the National Agricultural Marketing Council.

Variable costs would increase 20% in 2014/2015 for maize farmers and 18% for wheat farmers as from 2012, the report found.

"The impact of increases in electricity tariffs will have a significant impact on the ability of maize and wheat irrigation farms to realise sustainable profits in the future average and adverse conditions," the report said.

The study was based on a cost analysis of a typical 200ha irrigation farm in the Northern Cape with an average rainfall of 250mm a year.

Andre Jooste, a researcher for the NAMC, said farmers incurred electricity costs when pumping water to their fields from the nearest water source. However, a fixed commodity pricing system meant they were unable to transmit increased costs further up the supply chain.

"If it is not profitable for the producer, he won't produce - and that will ultimately effect the consumers," Jooste said.

However, electricity costs were just one of several negative factors driving farmers off their land, said the Milk Producers Organisation.

"Our biggest fear is that our industry will be served by only 15 'super diary farmers' if we continue like this," said chief executive Bertus de Jongh.

"A lot of smaller farmers are going out of business and that is unacceptable - especially at a time when South Africa is trying to settle emerging farmers."

He said the debt squeeze was causing major job losses and contributing to the depopulation of the country's rural areas

"Government has to become more agriculture-friendly otherwise we will have an enormous amount of social problems. The net effect is that people are moving more to the cities. This requires bigger farmers to feed cities. It's a very complicated loop that we are talking about," De Jongh said.

A diary farmer from the Southern Cape - who spoke to The Times on condition of anonymity - said the number of farmers had halved in the last 10 years.

"The small guy can't make it any more. Inputs costs have accelerated," he said.

An additional problem was "area" and "production" premiums paid by large milk buyers, who favoured bigger milk producers.